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Executive pay could be subject to legal challenges

Posted by: Laurence Simons 21/05/13

How much should executives be paid? The main consensus in the current economic climate seems to be very, very much, but slightly less than they are at the moment, especially if the businesses they head up are performing badly.

While the latter point may seem like common sense, there are still concerns in the US and across the world that top employees are being paid an excessive amount, with the law firm Skadden Arps Slate Meagher & Flom suggesting that legal challenges to these huge salaries could be on the increase.

New research from the group has implied that in-house legal teams should be involved in compensation panels, given that there is now the potential for legal problems if top-ranking workers are paid too highly.

Of the first 279 companies of the Russell 3000 to report the results of say-on-pay proposals, 72 per cent passed with over 90 per cent support while 22 per cent passed with between 70 and 90 per cent support, reports the Global Legal Post.

Proxy voting companies measure corporate governance in a number of areas - they are encouraging shareholders to look out for a disconnect between pay and performance, as well as large bonuses or equity grants offered for uncertain reasons.

Skaddens also pointed to a number of ongoing cases about breaches of financial duty, where businesses had not disclosed the process of their executive compensation plans with sufficient transparency.

Ultimately, general counsel are being asked here to take a role in the strategic planning of their organisation, something that is becoming increasingly common as the litigatory situation becomes more complicated for global businesses.